Trump's 25% auto tariff: Will Indian carmakers, ancillary companies face a speed bump? Tata Motors likely to bear maximum impact

With tariff collections beginning April 3, it remains to be seen what companies would resort to. Will it be hiking prices, cutting costs, or establishing a plant in the US?

Donald Trump has done it. The 47th President of the United States has delivered on his long-standing threat—hitting global automakers with a steep 25 percent tariff on imported cars and auto parts. While the April 2 deadline looms, markets are already rattled, fearing the fallout of a move that could upend supply chains and squeeze profits for companies with significant US exposure, including some of India’s biggest automotive names.

India may not be the biggest exporter of cars to the US, but one company stands in the line of fire—Tata Motors. Its luxury subsidiary, Jaguar Land Rover (JLR), is deeply entrenched in the American market, and the timing of this tariff shock couldn’t be worse.

Also read: Markets set to snap 5-month decline in March, April's seasonality hints at more gains

JLR sold over 400,000 units globally in FY24 out of which about 23 percent came from the US. Already grappling with a slowdown, the brand now faces an added burden—one that could derail growth.

"The U.S. alone contributed over a fifth of JLR’s total revenue last year, making it a crucial market. With limited options to maintain margins and meet prior guidance, JLR will likely resort to price hikes and cost efficiencies. However, these strategies won’t yield immediate results, and a near-term hit to both revenue and profitability is expected," said Nirav Karkera, Head of Research at Fisdom.

Passing on the added costs to consumers won’t be easy, and a potential dip in demand could pressure Tata Motors' bottom line. With JLR being the crown jewel of Tata Motors' revenue stream, the stakes are high.

Read more: Brokerages bullish on Hindustan Aeronautics on delivery of engines for Tejas MK 1A; stock up 30% in one month

"If JLR can raise prices proportionally, the revenue impact will be minimal. However, if demand falls due to higher prices, both sales volume and margins will suffer,” said Siddhartha Khemka, Head of Research and Wealth Management at Motilal Oswal in a conversation with Moneycontrol.

Morgan Stanley, too, sounded a warning note. The brokerage sees three options for JLR—pass the cost to consumers, cut expenses, or absorb the hit. If JLR chooses the latter, operating margins could shrink by 200 basis points, jeopardizing the firm’s 8.3 percent FY26 EBIT estimate. Free cash flow (FCF) could take a hit, potentially forcing JLR to consider setting up a US manufacturing facility to mitigate the damage.

Tata Motors isn’t alone

India’s auto ancillary firms — Sona BLW Precision Forgings, Bharat Forge, and Samvardhana Motherson International Limited (SAMIL) — are also staring at turbulence.

Sona BLW and Bharat Forge are particularly exposed, deriving 43 percent and 38 percent of their revenues, respectively, from the US. With most of their products manufactured in India, they are left fully vulnerable to the tariff blow.

Sona BLW has been working on an escape route—diversifying into China, Japan, and South Korea. The company aims for these markets to contribute over 50 percent of its revenue within five years. Bharat Forge, on the other hand, has fewer buffers. Meanwhile, SAMIL appears better equipped to ride out the storm. Its large facility in Alabama offers a strategic advantage, allowing it to sidestep tariffs by supplying domestic automakers within the US.

"Margins could be under pressure, especially for companies with high exposure to the U.S. Tariffs will increase costs, and if companies cannot pass them on, they may have to cut operational expenses or find alternative revenue streams," Shridhar Kallani, Research Auto Analyst at Axis Securities said in a conversation with Moneycontrol.

With tariff collections beginning April 3, it remains to be seen what companies would resort to. Will it be hiking prices, cutting costs, or establishing a plant in the US.

At 1:55 pm, Tata Motors shares sank over 5 percent, SAMIL slipped over 3 percent, Sona BLW plunged 7 percent, and Bharat Forge shed 2 percent. The Nifty Auto index dropped over a percent, though it remained off its lows.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before making investment decisions.